UK MP Ed Balls submits "Balls Clause" amendment at British Bankers Association annual dinner

Yesterday, UK Economic Secretary Ed Balls spoke before the British Bankers Association, where he unveiled his proposal to give the UK Financial Services Authority the ability to veto any London Stock Exchange rule that is "inconsistent" with the UK's "light touch" regulatory philosophy. (The UK's touch is so light that it's financial regulator does not currently have the authority to veto a UK exchange rule.) As discussed here, here, and here, this bill is designed to keep the Sarbanes-Oxley Act out of the UK, should NASDAQ or the New York Stock Exchange buy the London Stock Exchange.

During his speech, Balls said:

At the same time as arguing for a sensible and light touch approach at the global and EU levels, we must also take what action is needed to protect our domestic regulatory approach. The Government’s interest in this area is specific and clear – to safeguard the light touch and proportionate regulatory regime that has made London a magnet for international business. That has made London an economic asset for the UK, for Europe, and for countries throughout the world. That is why I announced last month that the Government would legislate to enhance the FSA’s powers over recognised investment exchanges and recognised clearing houses, building on this regime. Tonight I want to explain in more detail what we have in mind in respect of legislative procedure and substance.

The bill he unveiled states:

In a statement on 13 September, I announced that the Government would legislate to enhance the FSA’s powers over recognised investment exchanges and recognised clearing houses. In that statement I promised further detail in due course. I am now able to provide details on how we intend to take this issue forward.

The Government has decided to introduce a stand alone bill to enhance the FSA’s powers in the next Parliamentary session. The short bill will seek to modify Part 18 of the Financial Services and Markets Act which deals with recognised investment exchanges and clearing houses. We intend to introduce the bill as early as possible in the new session, with a 2nd reading expected before Christmas.

Our aim is to enable the FSA to stop recognised investment exchanges and clearing houses making changes in their regulatory provisions whose effects are likely to be disproportionate. To this end we expect that the provisions will:

Cover all of our recognised investment exchanges and clearing houses, including the full range of markets operated by our recognised ivestment exchanges.

Enable the FSA to veto changes to regulatory provisions introduced by recognised exchanges and clearing houses or those applying for recognition that impose an obligation or burden.

Limit the circumstances in which the veto can be used to those where the relevant requirement is excessive, that is it is disproportionate to the end it seeks to achieve or does not pursue a reasonable regulatory objective.

Any exercise of the veto will be subject to appropriate processes. In particular:

Where the FSA decides to call in a regulatory provision to determine whether it is excessive, it will need to specify a period during which representations can be made to it about the provision.

If the FSA decide to veto the regulatory provisions called in that decision can be challenged by judicial review.

These provisions are not intended to put into question existing regulatory provisions of investment exchanges and clearing houses. They are not intended to involve the FSA in micromanaging the regulatory provisions of investment exchanges or clearing houses. And they are not intended to make overseas ownership of UK exchanges any easier or more difficult than it is at the moment.

The legislation is simply about providing a back-stop to ensure certainty for stakeholders about the proportionality of the regulatory provisions of investment exchanges and clearing houses. We will consult shortly, including with the investment exchanges and clearing houses and their stakeholders, about the detail of what we will be proposing.